Britain’s equity market is shrinking

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Britain’s equity market is shrinking
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Ironically, Britain's A-list shareholder culture makes its de-equitisation all the likelier

ago Trian, a hedge fund, revealed that it had built a 6% stake in Ferguson, a London-listed company that supplies the building trade. Trian is run by Nelson Peltz, who has a long history as the sort of activist investor who buys stakes in firms and then uses his influence over management to boost the share price. Ferguson makes most of its profits in America. Yet its shares traded at a discount to peers listed there. Perhaps something could be done to change this.

The backdrop is a shift in the relative costs of debt and equity finance. One way to look at this is through the prism of expected returns. A rough-and-ready gauge of expected returns on stocks is the earnings yield—the inverse of the price-to-earnings ratio. It is a measure of real returns: if a burst of inflation raised prices at a uniform rate, the earnings yield would not change. The prospective earnings yield on theAll-Share index of London-listed stocks is 7.6%.

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